Where will SoundHound AI stock be in 1 year?

Actions of SoundHound AI (SOUND 0.80%) they have crushed the broad market over the past year with stunning gains of nearly 170% despite witnessing a lot of volatility. Investors bought this small-cap company to take advantage of growing demand for voice-based artificial intelligence (AI) solutions.

But SoundHound stock took off earlier this year after Nvidia revealed a small stake in the company, which has carved a niche for itself in the voice AI market despite its small size. But should investors continue to hold the stock in anticipation of higher earnings over the next year, even if it trades at an expensive valuation?

Let’s find out.

SoundHound AI’s latest results tell us that its rapid growth is sustainable

SoundHound released its second quarter results on August 8. Revenue rose 54% year-over-year to $13.5 million, beating the consensus estimate of $13.1 million. Adjusted loss per share decreased to $0.04 from $0.07 in the same quarter last year.

The company — whose voice solutions are used by companies in customer service areas such as restaurant ordering and by automakers to develop chatbots and conversational AI assistants — again saw strong demand growth in the last quarter . Its SoundHound Chat AI voice assistant is now deployed by six of the automaker’s brands Stellar.

A US electric vehicle (EV) manufacturer will also start rolling out the SoundHound voice assistant across its entire fleet very soon. It’s also gaining ground with automakers in Latin America and Europe, not to mention various restaurants and food ordering platforms.

All of this explains why the company’s revenue volume grew faster than its top line last quarter. It ended the period with cumulative subscriptions and bookings of $723 million, nearly double year-over-year. The remaining bookings include contracts with committed customers, while the stock of subscriptions is the potential revenue they could earn from current customers.

There is an element of uncertainty in this measure: there could be contract cancellations or they may not get the revenue they anticipate from current customers in the long term. But the company stresses that it makes “reasonable assumptions about adoption rates” while calculating the delay measurement.

More importantly, SoundHound’s growth suggests it’s capable of turning its strong pipeline into real revenue. And the company decided to further expand its opportunity in the voice AI market by acquiring Amelia for $80 million. The deal is intended to strengthen its presence in customer service, helping it reach more customers in insurance, healthcare, retail and financial services.

Management said Amelia will start contributing to its growth in the second half of 2024 and now expects to generate revenue of more than $80 million this year, up from the previous range of $65 million to 77 million dollars. For 2025, SoundHound expects sales to top $150 million, with Amelia contributing just $45 million in recurring revenue.

All this indicates that the stock could continue to remain a top investment in the coming year.

Analysts expect more increases in the next 12 months

According to six analysts covering SoundHound, the stock has a 12-month median price target of $7.00, a 36% upside from current levels. Five analysts rate it a buy, while one has a hold rating. The company’s latest results suggest it may indeed live up to those expectations next year.

However, investors should note that SoundHound shares are trading at 26 times premium sales after a fiery rally over the past year. And the company is still not profitable. So those looking to add this AI stock to their portfolios must be prepared to pay a rich valuation.

The bright side is that SoundHound’s impressive growth could help it justify that premium, especially with the pending Amelia acquisition. Bullish investors with a higher appetite for risk may still consider it pending more upside.